Price and quantity discovery without commitment

Stefan Bergheimer, Estelle Cantillon*, Mar Reguant

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Wholesale electricity markets solve a complex allocation problem: electricity is not storable, demand is uncertain, and production involves dynamic cost considerations and indivisibilities. The New Zealand wholesale electricity market attempts to solve this complex allocation problem by using an indicative price and quantity discovery mechanism that ends at dispatch. Can such a market mechanism without commitment provide useful information? We document that indicative prices and quantities are increasingly informative of the final prices and quantities and that bid revisions are consistent with information-based updating. We argue that the reason why the predispatch market is informative despite the lack of commitment is that it generates private benefits in terms of improved intertemporal optimization of production plans.

Original languageEnglish (US)
Article number102987
JournalInternational Journal of Industrial Organization
Volume90
DOIs
StatePublished - Sep 2023

Funding

We are grateful to Phil Bishop and the entire team at the New Zealand Electricity Authority for giving us access to the data and sharing their insights into the market. Aislinn Carty, Tianyu Luo, Almudena Valle, and Dorian Weber provided excellent research assistance. We thank the editor, David Genesove, an anonymous referee, seminar audiences and especially Gani Aldashev, Bruno Biais, Giacomo Calzolari, Julien Combe, Peter Cramton, Michele Fioretti, Chiara Fumagalli, David Goldreich, Robin Lee, Patrick Legros, Andras Niedermayer, Ariel Pakes, Mathias Reynaert, Marzena Rostek, Otto Toivanen, and Iivo Vehviläinen for their feedback and questions that helped us crystalize our thinking. Reguant acknowledges the support of NSF grant SES-1455084. This article has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement No 101001732-ENECML) ☆ We are grateful to Phil Bishop and the entire team at the New Zealand Electricity Authority for giving us access to the data and sharing their insights into the market. Aislinn Carty, Tianyu Luo, Almudena Valle, and Dorian Weber provided excellent research assistance. We thank the editor, David Genesove, an anonymous referee, seminar audiences and especially Gani Aldashev, Bruno Biais, Giacomo Calzolari, Julien Combe, Peter Cramton, Michele Fioretti, Chiara Fumagalli, David Goldreich, Robin Lee, Patrick Legros, Andras Niedermayer, Ariel Pakes, Mathias Reynaert, Marzena Rostek, Otto Toivanen, and Iivo Vehviläinen for their feedback and questions that helped us crystalize our thinking. Reguant acknowledges the support of NSF grant SES-1455084. This article has received funding from the European Research Council (ERC) under the European Union's Horizon 2020 research and innovation programme (grant agreement No 101001732-ENECML)

Keywords

  • Coordination
  • Electricity markets
  • Intertemporal optimization
  • Non-trading mechanisms
  • Pre-play communication
  • Price discovery

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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